Consider total cost and total revenue given in the following...

Consider total cost and total revenue given in the following table: $$\mathrm{Quantity} \quad 0\quad 1\quad 2\quad 3\quad 4\quad 5\quad 6\quad 7 $$ $$\mathrm{Total cost} \quad$8\quad 9\quad 10\quad 11\quad 13\quad 19\quad 27\quad 37 $$ $$\mathrm{Total revenue}\quad $0\quad 8\quad 16\quad 24\quad 32\quad 40\quad 48\quad 56 $$ a. Calculate profit for each quantity. How much should the firm produce to maximize profit? b. Calculate marginal revenue and marginal cost for each quantity. Graph them. ($Hint$: Put the points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed at 2 $1\over2$.) At what quantity do these curves cross? How does this relate to your answer to part (a)? c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry is in a long-run equilibrium?

Consider total cost and total revenue given in the following table:
$$\mathrm{Quantity} \quad 0\quad 1\quad 2\quad 3\quad 4\quad 5\quad 6\quad 7 $$
$$\mathrm{Total cost} \quad$8\quad 9\quad 10\quad 11\quad 13\quad 19\quad 27\quad 37 $$
$$\mathrm{Total revenue}\quad $0\quad 8\quad 16\quad 24\quad 32\quad 40\quad 48\quad 56 $$
a. Calculate profit for each quantity. How much should the firm produce to maximize profit?
b. Calculate marginal revenue and marginal cost for each quantity. Graph them. ($Hint$: Put the
points between whole numbers. For example, the marginal cost between 2 and 3 should be graphed
at 2 $1\over2$.) At what quantity do these curves cross? How does this relate to your answer to part (a)?
c. Can you tell whether this firm is in a competitive industry? If so, can you tell whether the industry
is in a long-run equilibrium?

Transcript

00:03 Okay, so the first part of the problem asked for us to calculate the profit for each quantity and then ask us how much should a firm produce to maximize profit.

00:14 Well, this is pretty simple, so what we can do is we are going to just subtract the total revenue less the total cost, and that's going to equal our profit.

00:27 So for each one of these columns here, we're going to go through and calculate the profit.

00:32 So let's do that right now.

00:38 So for the first unit, if we produce zero units, then our total cost is eight.

00:45 So we would get a profit of negative eight for that zero unit.

00:51 Up over here, all right.

00:53 Total cost is nine.

00:54 Total revenue is eight.

00:56 We're still taking a loss.

00:57 So that would be negative one.

00:59 All right.

00:59 For our second unit.

01:00 All right.

01:01 Now we're turning a profit.

01:02 We have a profit of six.

01:04 Total revenue on the third unit is 24 minus 11 so in that case we will be making $13 a profit bump over to the next unit and we will be making 19 on to 5 21 6 units 21 and it's 7 units 19 now what should jump out to you right here is that the move from six units to seven units gets us less profit so a rationally minded business owner would never want to make this jump.

01:40 You're losing money for the next unit you're producing.

01:44 So what's the maximum amount of profit i can make? $21.

01:49 So how much should a firm produce to maximize profit? well, it should produce six units of whatever item it is making.

02:01 Okay? all right.

02:02 So that's profit.

02:03 On b, it asked for marginal revenue and marginal costs for each quantity.

02:08 So let's go ahead and do that.

02:11 When we think about marginal revenue, right, that's just saying what is the revenue from producing the next output, right? the next item, the marginal unit.

02:26 So if we're moving from zero to one, well, how much, what is the marginal gain and revenue there? well, so we used to be making zero revenue.

02:38 Now we're making eight...

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